QUESTION 7

For Karl's 20-year 700,000 euro loan in the problem above, determine the actual rate he will pay in the table below if LIBOR +1% is as shown below and if

The annual cap is 1.5%, the annual floor is 1%, and

the lifetime cap = 3% and the lifetime floor = 2%

a. Fill out the table below: (6 points) for the actual rates paid for years 3-8

LIBOR+1% Actual rate paid

year 1 2.4% 2.4%

year 2 3.6% 3.6%

year 3 1.6%

year 4 1.4%

year 5 3.2%

year 6 5.0%

year 7 5.8%

year 8 7.9%

b. (3 points)What is the lowest actual rate that Karl would ever pay over the 20 year period, even if LIBOR was zero? _________%